Favorite Quotes from Warren Buffet

I thought I would use my final post of the year to share a few of my favorite quotes from the world's most successful investor, Warren Buffet.

“Wide diversification is only required when investors do not understand what they are doing.”

“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

“We believe that according the name 'investors' to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a 'romantic.'”

“Time is the friend of the wonderful company, the enemy of the mediocre.”

“The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.”

“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”

“Our favourite holding period is forever.”

“Only when the tide goes out do you discover who's been swimming naked”

“Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years”

“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”

“If past history was all there was to the game, the richest people would be librarians.”

“Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market”

“A public-opinion poll is no substitute for thought.”

“Lethargy, bordering on sloth should remain the cornerstone of an investment style.”

2008 U.S Dividend Growth

It has been a great year for dividend growth investors with over 60% of the S&P constituents increasing their dividend in 2007. On average the companies comprising the S&P 500 increased their dividend payments by a healthy 9.7%. Total dividends paid by S&P 500 companies broke a new record with a whooping $256.6 billion distributed to shareholders. This is up $31.8 billion from $224.8 billion in 2006.

According to S&P analysts dividends will continue to rise 2008 with the average estimated increase to be 9.3%. However, this growth is not expected to be evenly distributed amongst the S&P 500 group of companies. U.S financials are going to be the obvious laggards as virtually all growth in that sector is expected to be muted by the on going sub-prime fiasco. Many analysts are in fact predicting some significant dividend cuts from the large U.S financials, which account for 30% of the dividends paid by S&P constituent companies. Respected analysts such as Goldman Sach’s William Tanona, Betsy Miller and Neil Sanyal believe that Citigroup will have to cut their dividend by as much as 40% if the estimated $18.7 billion fourth quarter write down occurs.

Citi would not be unique as many other large financial players in the U.S have already slashed their dividend such as and Washington Mutual (WM – NEW YORK),Fannie Mae (FNM – NEW YORK) and Freddie Mac (FRE – NEW YORK).

My personal opinion is that 2008 will be a terrible year for large dividend paying U.S financials. However, I also believe that they will probably be over punished, over sold and possibly ignored by many investors. Thus creating the possibility of 2008 being a once in a decade buying opportunity for quality, dividend paying large cap U.S financials.

Canadian ETFs

Those of you that are pursuing (or interested in pursuing) an index or ETF based investment strategy might find the below list helpful. I’ve listed every ETF that trades on the TSX for your perusal.

iShares CDN S&P/TSX 60 Index Fund (XIU)
iShares CDN S&P/TSX Global Gold Index Fund (XGD)
iShares CDN MSCI EAFE 100% Hedged to CAD Dollars Index Fund (XIN)
iShares CDN Scotia Capital Universe Bond Index Fund (XBB)
iShares CDN S&P/TSX Capped Energy Index Fund (XEG)
iShares CDN Scotia Capital Short Term Bond Index Fund (XSB)
iShares CDN S&P 500 Hedged to Canadian Dollars Index Fund (XSP)
iShares CDN S&P/TSX Capped Financials Index Fund (XFN)
iShares CDN S&P/TSX Capped Composite Index Fund (XIC)
iShares CDN Dow Jones Canada Select Dividend Index Fund (XDV)
iShares CDN S&P/TSX Capped REIT Index Fund (XRE)
iShares CDN S&P/TSX Completion Index Fund (XMD)
iShares CDN S&P/TSX Capped Materials Index Fund (XMA)
iShares CDN S&P/TSX Capped Income Trust Index Fund (XTR)
iShares CDN S&P/TSX Capped Information Technology Index Fund (XIT)
iShares CDN Scotia Capital Real Return Bond Index Fund (XRB)
iShares CDN Scotia Capital All Corporate Bond Index Fund (XCB)
iShares CDN Dow Jones Canada Select Growth Index Fund (XCG)
iShares CDN Scotia Capital Long Term Bond Index Fund (XLB)
iShares CDN Dow Jones Canada Select Value Index Fund (XCV)
iShares CDN Jantzi Social Index Fund (XEN)
iShares CDN Russell 2000 Index - Canadian Dollar Hedged Index Fund (XSU)
iShares CDN Scotia Capital All Government Bond Index Fund (XGB)
iShares CDN S&P/TSX SmallCap Index Fund (XCS)
Horizons BetaPro S&P/TSX 60 Bear Plus ETF (HXD)
Horizons BetaPro S&P/TSX 60 Bull Plus ETF (HXU)
Horizons BetaPro S&P/TSX Global Gold Bull Plus ETF (HGU)
Horizons BetaPro S&P/TSX Capped Energy Bear Plus ETF (HED)
Horizons BetaPro S&P/TSX Capped Financials Bear Plus ETF (HFD)
Horizons BetaPro S&P/TSX Capped Financials Bull Plus ETF (HFU)
Horizons BetaPro S&P/TSX Capped Energy Bull Plus ETF (HEU)
Horizons BetaPro S&P/TSX Global Gold Bear Plus ETF HGD)
Claymore Canadian Financial Monthly Income ETF (FIE)
Claymore BRIC ETF (CBQ)
Claymore S&P/TSX Global Mining ETF (CMW)
Claymore Canadian Fundamental Index ETF (CRQ)
Claymore CDN Dividend & Income Achievers ETF (CDZ)
Claymore Canadian Fundamental 100 Monthly Income ETF (RFI)
Claymore US Fundamental Index ETF C$ hedged (CLU)
Claymore Oil Sands Sector ETF (CLO)
Claymore International Fundamental Index ETF (CIE)
Claymore S&P/TSX CDN Preferred Share ETF (CPD)
Claymore Japan Fundamental Index ETF C$ Hedged (CJP)
Claymore Global Balanced Income ETF (CBD)
Claymore Global Balanced Growth ETF (CBN)
Claymore S&P Global Water ETF (CWW)

Recent Canadian Dividend Increases

There is nothing more satisfying to a dividend growth investor than a nice juicy dividend increase. Here is a quick recap of some of the Canadian dividend increases in the last 3 weeks.

1.National Bank (NA) increased their quarterly dividend 3.33% to 62 cents/share.

2.Reitmans (RET.A) increased their quarterly dividend 12.5% to 18 cents/share.

3.Astral Media (ACM.A) increased their semi-annual dividend 25% to 25 cents/share.

4.Canadian Western Bank (CWB) increased their quarterly dividend 11% to 10 cents/share.

5.Bank of Nova Scotia (BNS) increased their quarterly dividend by 4.44% to 47 cents/share.

6.A&W Royalties Income Fund increased their monthly distribution 2.9% to 10.6 cents/unit.

7.Laurentian Bank (LB) increased their quarterly dividend 10.3% to 32 cents/share.

8.Fortis (FTS) increased their quarterly dividend 19% to 25 cents/share.

9.Cameco (CC) increased their quarterly dividend 20% to 24 cents/share.

10.Encana (ECA) stated that they would increase their quarterly dividend 100% to 40 cents/share.

11.Vermillion Energy Trust(VET.UN) increased their monthly distribution by 12% to 19 cents/unit.

12.Agnico Eagle Mines (AEM) increased their annual dividend by 50% to 18 cents/share.

13.Fortis (FTS) increased their quarterly dividend by 19% to 25 cents/share.

14.Westshore Terminals Income Fund (WTE.UN) increased they quarterly distribution by 24% to 36 cents/share.

Santa Claus/Christmas Rally

Every year there is talk about whether or not we are going to have a Santa Claus rally, and like many other phenomenon in the world of investing we can speculate about the possibilities until we’re blue in the face. However, we won’t actually know if there is going to be a rally until after it’s happened.

What is a Santa Claus or Christmas Rally?

A Santa Claus rally is the phenomenon of the stock market rallying in the week between Christmas and New Year (this of course doesn’t always happen).

Why does it Happen?

There is no single reason behind the Christmas rally but there are many possible explanations that have been suggested:

1. People investing their Christmas bonuses

2. General happiness of fund managers and investors due to the festive season.

3. Investors erroneously equating increased sales over the Christmas period to increased future share prices.

4. Money managers pilling money back into the market so that they don’t have to explain why they ended the year with such a high cash percentage when there was no pullback in the market.

5. People investing in the market in anticipation of a Santa Claus rally.

Personally, I pay no attention to Santa Claus rallies, and spend none of my time trying to predict them however, it’s impossible to ignore it altogether as the financial media seem to love talking about it which forces everyone to at least give it a passing thought.

Recession Resistance Portfolio - compiled

As promised here is a compiled list of recession resistant stocks. Thanks to “Thicken my Wallet” and “Money Gardener” for contributing.

Sin Stocks
CDL.A - TSX
MO - NYSE
ROC- TSX
BUD - NYSE
DEO - NYSE
UTX - NYSE
BA - NYSE
BTI - AMEX
ITY - NYSE
RAI - NYSE
CG - NYSE
TAP.A - TSX

Health Care
JNJ - NYSE
CL - NYSE
WAG - NYSE
TEVA - NASDAQ
PFE - NYSE
BAX - NYSE
CLC.UN - TSX
SC – TSX
MRK - NYSE
CVS - NYSE
GSK – NYSE
PG - NYSE
SGP - NYSE
GILD- NASDAQ

Utilities
TRP - TSX
ENB - TSX
EP.UN - TSX
FCE.UN – TSX
EMA - TSK
CU – TSX
MPT.UN – TSX
APF.UN – TSX
ACO.X – TSX
MPT.UN – TSX
IPL.UN - TSX
PIF.UN – TSX
T-NYSE
T.A-TSX
RCI.B - TSX

Staples
KO - NYSE
THI-TSX
L - TSX
PEP-NYSE
CLX-NYSE

Financials
SLF - TSX
MFC - TSX
GWO - TSX

Recession Resistant Funds and ETFs

If you don’t have a lot of capital to deploy or simply want to limit to your exposure to any individual names here are some mutual funds and ETFs that you might want to consider:

MUTUAL FUNDS

1. Vice Fund (VICEX)
“The Vice Fund invests in companies, both domestic and foreign, engaged in the aerospace and defense industries, owners and operators of casinos and gaming facilities, manufacturers of gaming equipment such as slot machines, manufacturers of cigarettes and other tobacco products, and brewers, distillers, vintners and producers of other alcoholic beverages”

2. T. Rowe Price Health Sciences (PRHSX)
“To invest at least 80% of net assets in common stocks of companies engaged in the research, development, production, or distribution of products or services related to health care, medicine, or the life sciences. While the fund can invest in companies of any size, the majority of fund assets are expected to be invested in large- and mid-capitalization companies.”

3. MFS Utilities (MMUFX)
"The fund focuses on utilities stocks believed to have strong growth prospects. These stocks generally come from the gas and electric utilities, telecommunications, and cable TV industries. A portion of the portfolio is typically invested in bonds and convertible securities.”

ETF’s

1. Utilities Select Sector SPDR Fund (XLU)
The Utilities Select Sector Index includes companies from the following
industries: electric utilities; multi-utilities; independent power producers &
energy traders; and gas utilities. The funds objective is to provide investment results that, before expenses, correspond generally to the price and yield performance of the index components that compose the utilities sector of the S&P 500.

2. PowerShares Dynamic Utilities Portfolio (PUI)
“The PowerShares Utilities Portfolio (Fund) seeks to replicate, before fees and expenses, the Utilities Intellidex. The Intellidex thoroughly evaluates companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investment timeliness and risk factors. Securities shown to possess the greatest capital appreciation potential are selected by the Index and incorporated by the portfolio manager.”

3. Health Care SPDR (XLV)
The Health Care SPDR tracks companies in the health care sector and includes companies primarily involved with health care equipment and supplies, health care providers and services, biotechnology, and pharmaceuticals industries. The funds objective is to provide investment results that, before expenses, correspond generally to the price and yield performance of the index components that compose the health care sector of the S&P 500.

4. PowerShares Dynamic Healthcare Services Portfolio (PTJ)
“The PowerShares Dynamic Healthcare Services Portfolio (Fund) is based on the Dynamic Healthcare Services Intellidex Index. The Index thoroughly evaluates companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investments and risk factors. Securities shown to possess the greatest capital appreciation potential are selected by the Index and incorporated by the portfolio manager.”

Building a Recession Resistant Portfolio

As promised in my last post “Recession Proof your Portfolio” here is a list of securities that you can use as a starting point to research your own recession resistant portfolio. Please feel free to add any other picks you feel I’ve missed in the comments section and I’ll post a compiled list.

Sin Stocks
CDL.A - TSX
MO - NYSE
ROC- TSX
BUD - NYSE
DEO - NYSE
UTX - NYSE
BA - NYSE
BTI - AMEX
ITY - NYSE
RAI - NYSE
CG - NYSE
TAP.A - TSX

Health Care
JNJ - NYSE
CL - NYSE
WAG - NYSE
TEVA - NASDAQ
PFE - NYSE
BAX - NYSE
CLC.UN - TSX
SC – TSX
MRK - NYSE
CVS - NYSE
GSK - NYSE
SGP - NYSE
GILD- NASDAQ

Utilities
TRP - TSX
ENB - TSX
EP.UN - TSX
FCE.UN – TSX
EMA - TSK
CU – TSX
MPT.UN – TSX
APF.UN – TSX
ACO.X – TSX
MPT.UN – TSX

In my next post I will list a few mutual fund and Exchange Traded Funds that would be appropriate for a recession proof portfolio.

(Disclaimer: As always please do your own research and make your own decisions on which investments on when to buy or sell. Nothing I say should be bastardized or construed in any way to be advice.)

Recession Proof your Portfolio

If you’re like many other small investors out there you might be feeling a little pang of worry about the possibility of a recession and are starting to unload some of your more cyclical and economically sensitive names. You could simply take the proceeds of your sale and dump them into fixed income products but with bond yield so low what’s the point? Unless of course your only goal is capital preservation as current yields will just barely beat inflation. For those of you nervous about the future of the economy but want to stay invested in equities you might want to take a look at the following three recession resistant areas:

1. Sin Stocks – These would include companies involved with: booze, cigarettes or weapons. Do you know anyone who’s stopped drinking or smoking when they’ve fallen on economically bad times? Wars continue on regardless of the state of the economy.

2. Health Care – Even if the economy is in rough shape people will continue to visit the doctor, continue to take their prescriptions and continue to treat their ailments. As the North American population ages the demand for health care products is going to continue to rise regardless of the state of the economy.

3. Utilities – Regardless of the state of the economy the lights will remain on, the phones will remain connected and houses will continue to be heated in the winter and cooled in the summer.

In my next post I will provide a list of names you can use as a starting point to assemble your own recession resistant portfolio.

Recession

There has been a lot of talk recently in the financial news about the big “R”… recession. If you’ve tuned in to any business channel in the last week you would have inevitably heard at least one talking head espousing their prediction of whether or not the US will enter a recession. We all know that a recession is bad but what exactly does it mean? And how do we know when we get there?

There is no absolute universal definition of a recession however, the definition used in the press and financial media is simply “two or more consecutive quarters of real GDP decline.” However, I prefer the description given by the National Bureau of Economic Activity (NBER):

“It's more accurate to say that a recession-the way we use the word-is a period of diminishing activity rather than diminished activity. We identify a month when the economy reached a peak of activity and a later month when the economy reached a trough. The time in between is a recession, a period when the economy is contracting. The following period is an expansion. Economic activity is below normal or diminished for some part of the recession and for some part of the following expansion as well. Some call the period of diminished activity a slump.”

The above description describes why it’s so hard to both predict recessions and determine if we are in one. By their very definition you have to use historical data to identify the “trough” or “slump” between the periods of economic expansion.

Retirement Nest Egg at the Close of Dec 3, 2007

-up 1.4% from last month
-up 7.9% in 2007
-CDN 64%
-U.S. 32%
-International 4%

TRP - 4.37%
CSH.UN - 4.24%
GWO - 4.91%
PFE - 5.12%
POW - 4.52%
BA.UN - 0.37%
WAG - 3.37%
L - 2.81%
UNS - 2.50%
GZ - 2.06%
TD - 14.29%
EIT.UN - 2.49%
JNJ - 5.95%
MMM - 3.65%
C - 3.06%
ATD.B - 3.35%
BCE - 5.77%
O'Shaughnessy’s Global Fund - 3.78%
American Growth Fund - 0.95%
CDN Value Fund - 3.44%
Small Cap Growth Fund - 4.01%
Chou Associates Fund - 10.06%
Money Market Fund - 4.92%

I made a few changes over the last month, I initiated a half position in C and took a full position in BCE. The 1.4% increase in my portfolio was a result of contributions and not share appreciation. Discounting my contributions in November my nest egg was actually down 2% from the end of October and up only 5.9% in 2007. The majority of the decline was a result of the underperformance of three of my holdings L, ATD.B and CSH.UN. I will continue to watch all three of my decliners and am considering selling L for tax reasons and switching into WN.

Purchased BCE

Shortly after Friday’s post I decided to take a full position in BCE. I am fully aware that there is some risk in this play. However, I believe that the risk reward favours investing in BCE. The worst case scenario as an investor is that the buyout does not occur and I’m left holding a position in Canada ’s largest telecommunications company.

Although the possibility exists that the deal will not go through here are the reasons I believe it will:

1. The Teachers Pension plan is not dumb and they are aware that there has always been regulatory risk and rumours regarding the opening of telecommunications markets in Canada.

2. The bond holders trying to block the deal are Bell bondholders not BCE bondholders.

3. Credit markets are in disarray due to the sub prime mess, which could cause problems raising the necessary capital. However, if financing cannot be obtained they have other options such as: increasing the amount of capital invested and refinancing later.

4. The consortium could simply walk away from the deal. However, I think that is highly unlikely as there is a $1 billion dollar break free in addition to the teachers losing hundreds of million of dollars on their existing shares of BCE.

If you want more information on the deal here is a link to the privatization page at BCE.

I would just like to reiterate that I am making an educated gamble and that buying BCE at this juncture is NOT RISK FREE so please do your own research and make your own decisions.

BCE – Still a Play?

As I’m sure everyone knows a consortium led by Teachers' Private Capital, Providence Equity Partners and Madison Dearborn Partners have made arrangements to acquire all of outstanding common and preferred shares of BCE. The deal is expected to close in the first quarter of 2008 and shareholders have overwhelmingly approved the $42.75 offered for each common share. Despite this fact (at the time writing) BCE is only trading at $39.40. This represents a discount of $3.35 or approximately 7.8%. Additionally, two dividends will be paid before the buyout for a total which will add another $0.73 per share. Combine the capital appreciation and the dividend income and that represents an upside of $4.08 or 10.3% between now and the second quarter of 2008. In my opinion a potential six month return of 10.3% is certainly very attractive in this environment. There is only one obvious risk to this scenario, the takeover does not happen. In my opinion the risk of this is minimal (but does exist) and I’ll probably be making a purchase of BCE in the near future.

A Couple Stocks with Huge Buyback Programs

I just wanted to point readers to these two high quality companies that have initiated massive share buybacks.

1. Cisco (CSCO) – Cisco just increased the amount of their share buyback plan by $10 billion bringing their total buyback program up to $62 billion. With a market cap of 170 billion this buyback represents approximately 36% of their outstanding shares. In further support of the stock David Dreman, a respected and successful value investor has recently been a buyer.

2. American International Group (AIG) – AIG has been aggressively buying back it’s shares over the last year (69 million shares) and will be adding another $8 billion to it’s buyback plan. Supporters of the stock include famous investors Micheal Price and Bruce Kovner who both have positions in AIG.

In my opinion any company that is undertaking massive share buybacks are at least worth taking a look at, as it indicates that the management of the company believes that the shares are fundamentally undervalued and are willing to put their money where their mouth is.

DRIPs

After my last post about DRIPs I received a few e-mail enquiries regarding different aspects of DRIPs so I thought it would be worthwhile to go over the basics.

What is a DRIP?

DRIP stands for Dividend Reinvestment Plan. There are 3 different types of DRIPs however they all work on the same principle, instead of shareholders receiving dividend payouts in cash they receive their dividend payout in the form of more company shares.

3 basic types of DRIPs

Company Run
This type of DRIP is administered directly through the publicly traded company. Fractional shares are permitted in this type of DRIP meaning that if you receive a quarterly dividend of $1 and the share price is $5 you would receive an additional 1/5 of a share. Additionally, many company run DRIPs also provide shareholders some incentive for staying enrolled ie – 3% bonus to the regular dividend. Company run DRIPs also usually offer a Share Purchase Plan which is a plan that allows investors to buy additional shares with no commission.

Transfer Agent-Run
For the shareholder this type of DRIP is the same as a company run DRIP. Transfer Agents are employed by companies to streamline their DRIP process and reduce the administrative costs associated with running a DRIP. Transfer Agents run DRIPs for a many customers and as a result can run offer the same program to multiple companies using the same resources resulting in lower costs.

Brokerage Run
Many brokers will now allow customers to reinvest their dividends at no cost. This type of DRIP is not a “real DRIP”, it is more of a service that the brokers provide to their customers and is often referred to as a “synthetic DRIP”. One benefit of brokerage run DRIPs is that they will allow you to DRIP many companies that do not even have a formal DRIP program. This allows investors to now DRIP virtually every blue chip company on the Canadian and US exchanges. Although synthetic DRIPs have really expanded the number of drippable companies they do have a few drawbacks. The first of which is brokerage run synthetic DRIPs do not allow for fractional share ownership, only full shares will be purchased and the remainder of the dividend will be deposited as cash into the customers trading account ie-company ABC has a $15 quarterly dividend and a $10 share price, this would result in the customer receiving 1 share of ABC and $5 cash instead of 1.5 shares. The second drawback of brokerage run DRIPs is that share purchase plans are not available. If you want to buy additional shares you have to pay the regular commission price of your broker.

I would just like to point out that if you plan to DRIP in a non-registered account it’s very important that you track the purchase price of each share bought through your DRIP as you’ll need to calculate your adjusted cost base if you ever do eventually sell some/all of your shares.

To DRIP or Not to DRIP

I have recently decided to enroll in the DRIP of many of my holdings. For those of you that have followed this blog for a while you’ll know that this is contrary to the opinion I had in March of 2007. However, before I’m labeled hypocritical (or possibly fickle) let me plead my case and explain the rational behind enrolling some of my positions.

My portfolio is now at the point where I won’t be adding many more new names as I plan on only holding between 20 and 25 securities. I believe that 20 to 25 holding will provide me with adequate diversification as well as allow me to keep informed on the names I own. As I’ll only be adding between 3 and 8 more positions I will be concentrating on increasing the amount invested in each of my holdings so I’ve decided that DRIPs would be the most effective method to do that as it would become burdensome and not very cost efficient to make 17 to 25 small additional purchases each year. I have chosen to exclude both TD and CSH.UN from the DRIP simply because I already own enough of them. The dividends and distributions from those names will be paid in cash which will be used to eventually add new positions. It’s important to note though that although I’ve enrolled in the DRIP I wouldn’t hesitate to add to existing positions that I felt were undervalued.

Here are the positions that I’ve decided to DRIP:
TRP
C
GWO
POW
WAG
L
UNS
JNJ
MMM
PFE
EIT.UN
ATD.B

Bell Aliant (BA.UN)

I recently took the opportunity to sell (commission free) my very small amount of BA.UN. I was able to do this through Bell Aliants “Small Unitholder Selling Program”. Bell has decided to allow unitholders who own less than 100 units to “sell all, but not less than all, of their Units without incurring brokerage charges.” You might be wondering why BA.UN would go out of their way and absorb the cost of this initiative...well the answer is easy, money. Bell is anticipating that this initiative will save them money by reduce the administrative burden and cost associated with having so many unitholders. It takes the same amount of administrative resources to issue distributions, annual report etc...to a unitholder with 5 units as it does to one with 200. Well your next question might be “who would buy only 5 units of BA.UN?” well...the answer is nobody. However, thousands and thousands of BCE shareholders were issued units of BA.UN when it was spun off last year. If I remember correctly you received around 7 shares of BA.UN for every 100 shares of BCE that you owned. This resulted in thousands of people receiving a very small amount of BA.UN.

Here’s why I decided to take advantage this offer:

1. BA.UN is an insignificant portion of my portfolio (less than half a percent)
2. Like thousands of others I acquired my shares when they were spun off of BCE.
3. Although I believe the distribution is stable I invest for the long term and don’t see any growth in the landline business.

If you’re interested in selling your units the offer is open until January 17,2008. The official press release by BA.UN can be found here.

Questrade – Recently Closed My Account

I’ve recently closed my Questrade account for a few reasons. The first and most important one is that my big bank now offers me the same commission rates as Questrade in addition to all the other great features that Questrade lacks. Additionally, I’ve been very unimpressed with their customer service. I’ve only called fours times however, each time I felt very rushed by the representative and on one occasion they would not stay on the phone to verify that I could indeed login again and I was told to call back if it didn’t work. That wouldn’t normally bother me except that it took nearly 30mins to talk to a rep in the first place. Additionally, on their website they claim that it’s 1-2 days for an electronic funds transfer from Questrade to your bank account. However, my experience is that it takes approximately a week. After waiting on the phone for about 30mins I was told that it was 1-2 business days after it’s processed at Questrade but there was no guarantee on the processing time. Personally, I wouldn’t even trade through Questrade if there were absolutely no trading fees. After my multiple dealings with them I don’t trust them and don’t have any confidence in their customer services or technology. That being said Questrade might be an option for individuals that don’t qualify for discounted rates at one of the big banks and don’t mind extremely sub-par customer service.

I would like to note that this is only my opinion and it could be that my experiences are not typical of other Questrade customers. I know that some Questrade representatives read this blog so please feel free to comment.

Dividend Growing Stocks VII – Walmart (WMT)

“Wal-Mart Stores, Inc. is the world's largest retailer. They are engaged in the operation of mass merchandising stores, which serve their customers primarily through the operation of three segments, which are the Wal-Mart Stores segment, the SAM'S Club segment and the International segment.”

-Current PE – 15X
-2008 Estimated PE – 14.3X
-2009 Estimated PE – 12.9
-ROE – 21%
-ROI – 13%
-Current Yield – 1.95%
-5 Year Average Yield – 1%
-Dividends Paid Since 1973
-Current Payout Ratio – 26%
-5 Year Historical Payout Ratio – 21%
-3 year dividend growth rate - 14.63 %
-5 year dividend growth rate – 20.80%
-22% of their revenue is from international operations

Like many other large caps the earnings have been growing while the share price remains relatively stable and over the last 10 years WMT has been seen it’s PE contract from 28X to 15X.

I don’t currently own WMT however it is one I would eventually like to add to my portfolio.

25 Stocks to Avoid

I recently read an article by Jon Markman over at MSN Money Central. In his article he explains his rational for avoiding the following 25 stocks.

To read the entire article please click here.

25 COMPANYS JON MARKMAN SAYS TO AVOID

1. Merrill Lynch (MER, news, msgs)
2. Lehman Bros. (LEH)
3. Bear Stearns (BSC)
4. Bank of America (BAC)
5. Citigroup (C)
6. Washington Mutual (WM)
7. KeyCorp (KEY)
8. Wachovia (WB)
9. Moody's (MCO)
10. McGraw-Hill (MHP)
11. YRC Worldwide (YRCW)
12. JB Hunt Transport Services (JBHT)
13. Con-Way (CNW)
14. Knight Transportation (KNX)
15. Old Dominion Freight Line (ODFL)
16. McClatchy (MNI, news, msgs)
17. The New York Times (NYT)
18. Gannett (GCI)
19. Arctic Cat (ACAT)
20. Bed Bath and Beyond (BBBY)
21. Williams-Sonoma (WSM)
22. La-Z-Boy (LZB)
23. Stanley Furniture (STLY)
24. Bassett Furniture Industries (BSET)
25. News Corp. (NWS)

Of course you should do your own research as it's been my experience that the best buying opportunities are often when everyone else says don't buy (however sometimes they're right)

PFIZER (PFE)

For those of you that track my portfolio and keep me honest during my monthly nest egg updates (thank you)...and...I forgot to mention that I topped up my position in PFE last week bringing it back to approximately 5% of my portfolio.

Citi Group – C

I initiated a half position in C on Monday and plan on holding this name indefinitely.

“Citigroup is organized into four major business groups: Global Consumer; Markets and Banking (M&B); GlobalWealth Management; and Alternative Investments. The Citigroup Global Consumer business includes banking services, credit cards, loans and insurance. The M&B business is in about 100 countries and advises companies, governments, and institutional investors on the best way to realize their strategic objectives. The GlobalWealth Management division at Citigroup is comprised of The Citigroup Private Bank, Smith Barney (private wealth management), and Citigroup Investment Research,and serves both private and institutional clients.”

Here are my reasons for buying:
-As a general rule I’ve found that the best time to buy large multinational blue chips is when everyone else hates them.
-S&P credit rating = AA (second highest rating)
-Moodys credit rating = Aa1 (second highest rating – very little credit risk)
-Currently 45% of their revenue is generated outside of the United States and their current focus is to increase this number to 60%.
-They have the world’s largest credit card operation.
-In my opinion they are extremely well positioned to expand their international operations.

PE – 8.7X
Estimated 2007 PE – 9.7X
Estimated 2008 PE – 7.7X
Current dividend yield – 6%
5 year avg. dividend yield – 2.9%
5 year avg. dividend growth – 24.1%
3 year avg. dividend growth – 9.26%
Payout ratio – 47%
ROE – 17.9
Price/Book – 1.4X

Other Facts:
-S&P recently downgraded them from 5 stars (strong buy ) to 3 stars (hold). However, they have a 12 month $45 price target and rate them a low risk investment. From my purchase price this represents a total one year return of 26% (20% capital gains + 6% dividend). If I was an analyst I would find it hard to rate a company that I believed would return 26% in 12months with limited risk a hold…
-Argus recently reduced their 1 year target price to $55 from $60 but are maintaining a buy rating.

As I mentioned above I’ve initiated a half position in C and am going to take a wait and see approach from here. However, if the stock declines significantly from here I will be doubling down.

(Disclaimer: I’m not your boss or your spouse so do you own research and make your opinions on when to buy or sell. Nothing I say should be bastardized or construed in any way to be advice.)

ZED - Sold & Lesson Learned

I recently sold my position in ZED for about a 30% loss. If you’ve been following this blog for any length of time you’ll know that ZED accounts for only 0.4% of my portfolio so selling at a 30% loss will certainly not affect my portfolio in any meaningful way. However, my brief foray into speculative, cyclical, micro-caps has taught me a couple valuable lessons.

1.I should stick to large companies that I’m able to properly analyze. Before buying ZED I used the same techniques that I use for large caps. However, with small caps the earnings are often much more volatile and the accuracy of earning estimates is often low as there are usually very few analysts following each name.

2.I have been developing and using a value oriented dividend growth based investment strategy for the past 8 years that has been working successfully for me. I should stick with what I know and continue to invest in what I’m comfortable and successful at.

Retirement Nest Egg at the Close of Oct 31, 2007

-down 1% from last month
-up 7.6% in 2007
-CDN 69%
-U.S. 27%
-International 4%

TRP - 4.52%
CSH.UN - 5.08%
GWO - 5.23%
PFE - 3.49%
POW - 4.55%
BA.UN - 0.41%
WAG - 3.52%
L - 3.69%
UNS - 2.88%
GZ - 2.41%
TD - 13.9%
EIT.UN - 2.75%
JNJ - 5.49%
MMM - 3.68%
ATD.B - 3.83%
O'Shaughnessy’s Global - 3.97%
American Growth Fund - 0.96%
CDN Value Fund - 3.74%
Small Cap Growth Fund - 4.4%
Chou Associates Fund - 10.15%
Money Market Fund - 11.37%

No huge changes from last month. I initiated a position in WAG and unloaded ZED for a loss which I’ll talk about more on Monday. The decrease in my portfolio is largely due to the weakness of the US dollar. I’ll also start including the amount of Canadian, American and International exposure that I have for each network update. I’m currently sitting with about 11% of my portfolio in cash and am watching quite a few stocks but am closely watching C,BAC, TOC, IIC, BMO, WMT as well as opportunities to add to my existing positions on weakness.

Government Sued Over Income Trusts

I came across an article by John Partridge while doing my daily read on Globe Investor and thought that it was worth sharing.

SYNOPSIS:
A U.S. couple is currently in the process of suing the Canadian government claiming that the 2006 unexpected changes to the income trust tax laws are in breach of the NAFTA agreement.

To read the entire article please follow this link.

U.S Housing

Ok so Buffet and many other deep value investors are starting to re-enter the housing market and some of you want to go against the herd and follow Buffets lead (and why wouldn’t you Buffet is the most successful investor of all time)...but which housing companies are going to survive? Which are going to fail? Which are going to thrive? There are some great companies out there that are certainly going to survive ie- HOME DEPOT, LOWES etc…However, are those companies going to thrive? What about builders? Which ones are going to continue to thrive? If you’re like everyone else out there you don’t know the answer to those questions (and neither do I). However, if you’re confident in the sector but not necessarily in the individual names of the sector you might want to check out the SPDR Homebuilders ETF.

“The SPDR Homebuilders ETF seeks to replicate as closely as possible, before expenses, the performance of an index derived from the homebuilding segment of a U.S. total market composite index. The Fund uses a passive management strategy designed to track the total return performance of the S&P Homebuilders Select Industry Index (the "Homebuilders Index" or the "Index"). The Homebuilders Index represents the homebuilding sub-industry portion of the S&P TMI. The S&P TMI tracks all the U.S. common stocks regularly traded on the NYSE, American Stock Exchange, NASDAQ National Market and NASDAQ Small Cap exchanges (except Berkshire Hathaway). The Homebuilders Index is an equal weighted market cap index.”

The above description was taken from the American Stock Exchange

Year to date XHB is has already fallen 42.56%. Here are the top 10 holdings.

Home Depot - 4.44%
Lowes - 4.33%
Sherwin Williams - 4.75%
Mohawk Inds Inc - 4.99%
D R Horton Inc - 4.45%
Pulte Homes Inc - 4.62%
Toll Brothers Inc - 5.38%
Leggett & Platt Inc - 4.73%
Lennar Corp - 4.68%

It’s currently trading at almost exactly it’s net asset value.

(Disclaimer: As always please do your own research before making any purchases.)

Time to Get Back Into Housing? Buffet Thinks So

The U.S. housing sector is a mess, everyone’s waiting for the next shoe to drop in the whole sub prime fiasco and all the analysts are advising clients to avoid the sector. You’d have to be crazy to invest in the U.S housing sector right now… right? Well maybe not, last month Warren Buffet raised $750 million through a debt offering for Clayton Homes, which “builds, sells, finances, leases, and insures manufactured and modular homes as well as re-locatable commercial and educational buildings.”

Other successful investors initiating positions in the housing market include:
Robert Robotti
Robert Rodriguez

Natural Gas – II

Here’s a little more detail on the factors that effect natural gas prices.

Weather
The demand for natural gas usually peaks sometime between November and March. This of course depends on how cold the temperature gets as natural gas is the main input for heating North American homes. Likewise, the demand for natural gas increases in the summer when everyone starts turning on their air conditioners. The price of natural gas is also influenced by catastrophic weather events ie- hurricanes. If you’ve ever watched your local weather forecast you know that the weather can’t be accurately predicted (especially the long term forecast) so although we know that weather affects the price of natural gas we can’t predict when. However, it is safe to assume that at some point there will be either a vicious hot/cold snap or major hurricane and gas prices will spike (which is when they should be dumped)

Demographics
Well this one is obvious...the more people that need to heat/cool their house the greater the demand for natural gas.

Economic Growth
Industrial and commercial enterprises use a huge amount of electricity (which is largely generated with natural gas). When the economy is flourishing the demand for goods increases and therefore the manufacturing of goods increases which increases the amount of electricity used. The opposite occurs during a recession. As an example during the small recession in 2001 the industrial demand for natural gas fell by 6%.

Fuel Competition
This basically refers to the ability of large industrial users of natural gas to change fuels if the price of natural gas gets too high. For example, some power plants can change from gas to coal and vise versa if the price of either commodity gets too high. This will decrease demand of the commodity and therefore reduce the price of that commodity.

Storage
The amount of gas in storage obviously affects the price…the more gas in storage the lower the price, the less gas in storage the higher the price. This is a simple principle of supply and demand, if there is lots of gas in storage there is a limited threat of a supply crunch.

Exports/Imports
If natural gas is cooled to -260F at normal pressures it become a liquid know as LNG and takes up 1 six-hundredth of the volume that it does in it’s gaseous state. LNG is really the only economically viable way to ship natural gas internationally and currently only accounts for about 1% of the natural gas used in the United States. However, as technology advances this number is certain to climb which will cause natural gas to be priced based on global demand (as most commodities are) instead of continental demand.

Chartwell Seniors Housing - CSH.UN

I’ll continue on the natural gas theme next week…in the meantime. I increased my position in Chartwells Senior Housing yesterday bringing CSH.UN up to just over 5% of my portfolio.

“Chartwell is a growth-oriented investment trust owning and managing a complete spectrum of seniors housing communities. It is the largest participant in the Canadian seniors housing business and the third largest in North America. Chartwell will capitalize on the strong demographic trends present in its markets to grow internally and through accretive acquisitions. Chartwell also has an exclusive option to purchase stabilized communities from Spectrum, Canada's largest and fastest growing seniors housing development company.”

-The company is well positioned to capitalize on the aging North American demographic
-They have a significant presence in the higher margin category of retirement homes (ie-retired wealthy people)
-I’ve recently talked to a few people who have just placed their parents in a Chartwells nursing home and they were blown away at the quality of the accommodations and services provided in the home.

Dividend Yield: 8.9%
Current P/E– 0
Projected 2007 P/E – 16.5X
Projected 2008 P/E – 12.3
Price/Sales – 1.9
Price/Book – 1.3

-Were recently for sale but did not receive any offers that management thought were acceptable.
-Have primarily been a growth by acquisition story but are now concentrating on bringing in all operations.
-BMO rates them as “outperform”
-National Bank has a $15 price target
-Canaccord has a $12.5 price target
-First Call consensus is a hold

For more information on CHS.UN please visit their website at:
www.chartwellreit.ca

Natural Gas

I have been recently doing some research and speaking with a mining engineer friend of mine about natural gas and its prospects as an investment going forward. I’m in the process of developing a general strategy for investing in natural gas. As many of you probably know natural gas prices have been depressed while oil and other resources have been enjoying a boom. This point is be painfully clear if you are one of the many investors that have a gas stock or two tucked away in your portfolio…as many of them have literally been cut in half ie – CMT, GZ, GNY

Now it’s not all bad news. The good news is that because natural gas prices are so low many companies have either greatly reduced (or stopped) their drilling levels. Despite this fact there has been no movement in gas prices, why? Well the reason is simple we still have a ton of the stuff in reserve so there hasn’t been any pressures on the supply side…yet…but what happens when those reserves start to diminish? Well the answer’s obvious increased gas prices. This of course will cause increased stock prices of the gas producers. So in a sense the gas business is largely self-regulating over time.



Other factors that will affect the demand for natural gas are listed below:
1. Weather
2. Demographics
3. Economic Growth
4. Fuel Competition
5. Storage
6. Exports

I’ll elaborate on each of the criteria tomorrow and talk a little more about what I’m planning on doing with natural gas stocks.

Steps to Early Retirement

There is certainly no shortage of opinions on the steps to early retirement. In this post I’m going to outline the steps that I will be following and feel are necessary to successfully retire early.

Step 1
Realizing that you Actually Need a Retirement Plan – this sounds simple but it’s amazing how many people don’t have a real retirement strategy. Many people save for retirement but have no idea how they are doing or how close they are to retirement. I’ve talked to people who’s “retirement strategy” is to work until 60 and then retire…but they have no idea of how much money they’ll need at 60, how much they’ll be receiving or how much they should be saving or investing. I think “Realizing that you Actually Need a Retirement Plan” is the most important but often overlooked step in many people's retirement journey.

Step 2
Now that you know you need a real retirement plan you need to determine exactly how much money you’ll need each month and then add 10% to that number as a safety cushion. Probably the easiest way to do this is to keep track of your current monthly expenditures and then add and subtract any expenses/expenditures that you think you’d have in retirement ie- increased travel costs, decreased commuting cost etc...

Step 3
Determine how you’re going to generate the required income you calculated in step 2. This isn’t an easy task and if you have no interest in investing or finance may require the help of a retirement planner or investment advisor. I’m not going to go over all of the available strategies as your retirement strategy should be tailored to your specific needs and risk tolerance. Personally, I am pursuing a dividend growth strategy, the rational for my decision can be found here.

Step 4
ELIMINATE ALL DEBT – I personally believe that it’s crucial to ensure that when your retirement date arrives you have no debt of any kind (this certainly includes your mortgage). After you retire your employment income will be 0 so to protect yourself from unforeseen events (ie- rapid rise in interest rates) I am going to make sure that I am debt free when I retire. Some people will argue that it’s OK to retire with a small amount of manageable debt…but I disagree.

Here is a link to my personal retirement philosophy. It will probably be different than yours but it works for me. As always comments are welcome.

Loblaws

The Money Gardener asked me a good question in the comments section of my blog but I thought I’d answer it as a post as I’ve recently received a few email regarding Loblaws.

"I am surprised that you still hold Loblaws. Are you in this name for the long term? What is your rationale for holding on to this dog?"

Good question...I bought L with the intention of holding for the long term. However, my patience is starting to wane. Since I bought it has been disappointment after disappointment however, I am going to continue to hold and give them a chance to execute their strategy and get their supply chain issues sorted out. I still believe that L is the best CDN grocery retailer and has well respected brands in both the discount and upscale grocery market. Additionally, free cash flows are starting to increase and at 18X estimated 2007 earnings and 16X 2008 estimated earnings I don’t think the stock has a lot of downside from here as the valuations are getting reasonable. Additionally, the stock is considered to be in a defensive sector and the markets expectations are already so low that the stock won’t be severely punished from here (unless they miss earnings by a huge margin). For now I am going to continue to hold and collect the 2% dividend, but as I said my patience is starting to wane and if they continue to disappoint and falter in the execution of their strategy I will be a seller.

New Position - WAG

I initiated a position in WAG yesterday. As many of you know I really like the company but just haven’t been able to pull the trigger based on valuation. However, that all changed 10 days ago when WAG missed earnings by $0.07 and the stock was hammered 15%. Despite the earnings miss I don’t think that anything has fundamentally changed with WAG and as far as I can tell the pricing environment is the same as it was before the miss. The recent correction has simply made a great company cheaper and I plan on being a very long term shareholder of the company.

For further fundamental information on WAG please refer to the below posts:

From My Blog
Investing Based on Demographics WAG-CVS

From the Money Gardeners Blog:
Who said Drugstore Stocks Were Boring

(Disclaimer: I’m not your boss or your spouse so do you own research and make your opinions on when to buy or sell. Nothing I say should be bastardized or construed in any way to be advice.)

Retirement Nest Egg at the Close of Oct 09, 2007

-no change from last month
-up 8.6% in 2007

TRP – 4.25%
CSH.UN – 2.90%
GWO – 5.05%
PFE – 3.7%
POW – 4.45%
BA.UN – 0.41%
L – 3.76%
UNS – 2.87%
GZ – 2.51%
TD – 14.02%
EIT.UN – 2.74%
JNJ – 5.69%
MMM – 4.15%
ZED – 0.44%
ATD.B – 3.7%
O'Shaughnessy’s Global Fund – 3.97%
American Growth Fund – 0.98%
Canadian Value Fund – 3.77%
Small Cap Growth Fund – 4.21%
Chou Associates Fund – 10.12%
Money Market Fund – 16.31%

Last month was unusually active for me (although still quite boring by many peoples standards). I sold GO.A just before their 10% drop, took some profits in ABX (sold too early) and finally decided to unload an underperforming Health Science Fund that I’d purchased almost a decade ago before I really knew anything about investing. These transactions have left me with about 16% of my portfolio sitting in cash. This month I will probably be initiating a position in WAG and will continue to keep an eye on ATD.B, IPL.UN, IIC, TOC, GO.A

Investing based on Demographics - Johnson & Johnson (JNJ)

“Johnson & Johnson is engaged in the manufacture and sale of a broad range of products in the health care field in many countries of the world. The company's worldwide business is divided into three segments: Consumer; Pharmaceutical; and Professional.”

Dividend Yield: 2.6%
Dividend Yield 5yr Avg: 1.9 %
ROE levels of above 21% for the past 10 years
Current P/E– 18
Projected 2007 P/E –16
Projected 2008 P/E – 15
4 Star rating from S&P - $74 one year target
Argus rates it a buy with a $76 one year target

Other information:
-44 years of consistent dividend growth.
-Dividends issued to shareowners every quarter since 1944.
-Dividend raised each year for 44 consecutive years.
-Sales have increased each year for 73 consecutive years.
-Double digit Earnings increases for 21 consecutive years.
-44% of sales outside of North America

THESIS: JNJ sells hundreds of brand name products in the health care space. As the population ages they will increasingly be using more health care products and devices made be JNJ. I am very bullish on the long term prospects of JNJ and currently have close to 6% of my portfolio invested with them. I would continue to accumulate as both JNJ and the American dollar dips.

Investing Based on Demographics - CLC.UN

I'm still on vacation but managed to get connected with a 28.0 kbps modem (very very slow)...and for those of you that live in Canada have a great Thanksgiving.

CML Health Care (CLC.UN)

“Provides laboratory testing services in Ontario and medical imaging services in five provinces across Canada through wholly owned CML Healthcare Inc.”

Dividend Yield: 6.4%
ROE: 19.91%
PE: 14.6X
Estimated 2007 PE: 13.3X
Estimated 2008 PE: 12.85X
TDNewcrest: Hold, $15.65 target

THESIS: This one is easy, CLC.UN makes money whenever a medical test is sent to the lab. As the population ages more tests are done. CLC.UN is a virtually recession proof company, in an industry with high barriers to entry and rock solid cash flows that I definitely plan on adding to my portfolio in the future. This is another case where I love the company but don’t like the price. The only disadvantage I see with owning CLC.UN (other than valuation)is that many of their prices are regulated but the government which means they lose their pricing power for some tests.

Investing Based on Demographics - SC

Shoppers Drug Mart - SC

“Provides pharmacy products and services through retail drug stores across Canada. The company licenses its drug stores to pharmacists or associates who operate a retail drug store at a specific location in Canada using the company's trademarks, Shoppers Drug Mart”

Dividend Yield: 1.2%
ROE: 16.53%
PE: 26X
Estimated 2007 PE: 24X
Estimated 2008 PE: 21X

THESIS: the thesis behind this company is the same as WAG and CVS: older people take more drugs and fill more prescriptions. SC should also benefit from seniors buying more beauty items in an effort to keep looking young as well as more impulse items simply because they’ll be in the store more. SC is also now has cosmetic consultants that are placed right by the entrance of many of their stores to target older women who want to stay looking good. I think SC is a great company but would not be a buyer at these valuations.

On Vacation

I’ll be on vacation from tomorrow until October 9th. However, I’ll try get at least a few post in over that time period...so there’s no need to cancel your internet subscription and sell your computer.

Thompson Corp. (TOC)

I wanted to take another break from the demographics theme to talk a little bit about TOC.

"The Thomson Corporation is a leading global provider of integrated information-based solutions to business and professional customers.
Thomson provides value-added information, with software tools and applications that help its customers make better decisions, faster. We serve professionals in the fields of law, tax, accounting, financial services, scientific research and healthcare."

Thompson Corp. is the kind of company I want to own and would fit perfectly into my conservative, dividend growth oriented portfolio. I’ve been watching TOC for a number of years and just haven’t been able to pull the trigger based solely on valuation. As you can see from the below numbers they do still appear expensive from both an earnings and cash flow perspective. However, I believe that their recent acquisition of Reuters could allow the company to capitalize on the synergies between the two companys and really allow them to break out of the sideways trend they’ve been in for the last 2 years. The merger also makes them the largest provider of information to the financial service sector which will really gives the company a global presence.

Other positives of TOC include:
-many steady streams of income from a number of subscription based medical, legal, scientific and financial professions.
-history of increasing dividends.
-positioned for growth as our economy (and economies around the world) are rapidly becoming information based where knowledge and information is required 24/7 and on demand.

Dividend Yield:2.3%
5 year Avg. Dividend Yield: 2.0%
ROE: 9.04%
PE: 26X
Estimated 2007 PE: 25.9X
Estimated 2008 PE: 23.2X
Price/Cash Flow: 16.23

This company has never been cheap however, it currently appears cheap based on it’s historical trading range. I think there is potential here and for the first time in a long time TOC seems to have a catalyst that could push the stock higher in a year or two. Despite the valuations I’m contemplating taking a position in TOC. Any thoughts?

Investing Based on Demographics – DIS, RET.A

Disney (DIS)
I think everyone basically knows Disney...Mickey Mouse, Donald Duck etc… However there is a lot more to Disney than their famous classic characters. Although, their roots are certainly in animation they are now a massive international media company that operates in four major business units:

1. Studio Entertainment - Pixar Animation Studios, Touchstone Pictures, Miramax Films
2. Parks and Resorts – 5 Disney Land resorts in 4 different countries, Disney Cruise Lines
3. Consumer Products – Disney stores, largest publisher of childrens books
4. Media Networks – ABC, ESPN as well as a many broadcast, cable, radio, publishing and Internet businesses

I’ve listed some of the brands in each of the 4 categories but to view their entire holdings please follow this link.

Dividend Yield:0.9%
Dividend Yield 5yr Avg: 1.0%
ROE: 14.27%
ROI: 10.45%
PE: 16X
Estimated 2007 PE: 18X
Estimated 2008 PE: 16.3X
S&P Rating: 5 stars, strong buy, $45 price target
Argus Rating: buy, $41 price target

THESIS: A fellow blogger “The Money Gardener” who is the author of http://themoneygardener.blogspot.com/ has provided the thesis behind investing in Disney as a demographics play. His thesis is as follows:

“My thesis on Disney is that if there is one thing that boomers over 55 value, it’s their Grandkids. My parents were absolutely ecstatic when they found out they were going to be Grandparents. Kids today have more people, and wealthier people willing to purchase toys, movies, trips, etc. for them. Also, because today’s society is based more on dual income families they tend to buy their kids affection with Disney products, and have more income and wherewithal to take a vacation to Disney Resorts. Disney has become somewhat of a status symbol for the middle class. I once heard a Father say ‘my goal is to earn enough money this year to take my family to Disneyland’.”

Reitmans (RET.A)
“Reitmans Canada Ltd. has grown to include over 800 stores operating under eight divisions: Reitmans, Smart-Set, RW & CO., Penningtons, MXM, Thyme Maternity, Addition-Elle and Cassis. Today there are 343 Reitmans stores across Canada, offering a full line of ready-to-wear clothing and accessories that cater to the active woman and her daughter-everything from careerwear to casual wear, all available in petite to full sizes. At Reitmans, you'll always find friendly service, stylish clothing, quality products and unbeatable prices that all add up to great value. To view their website please click here.

Dividend Yield:3.30%
Dividend Yield 5yr Avg: 1.5%
ROE: 19.96%
PE: 14.3X
Estimated 2008 PE: 14.18X

THESIS: Well...the thesis is easy here...women like to shop and women like to look good (regardless of how old they are). Although Reitman’s does have some banners that appeal to the 35 and under age group (Smart Set, RW & CO, Thyme Maternity) they have recognized the upcoming shift in Canadian demographics and lifestyle and have a number of divisions that will be huge beneficiaries of both the aging, and fattening, of the Canadian population (let’s face it as a society we tend to fatten up with age) as both Penningtons and Addition-Elle cater specifically to plus sized women. While Cassis is designed to appeal to older women who want to look great but at the same time more mature and sophisticated. The banner on the front of their website reads “WE’RE GETTING YOUNGER EVERYDAY”. In my opinion this is going to be a huge growth market and RET.A is positioning itself to capitalize on it. This post was basically my first look at RET.A but it is definitely one that I’m am going to add to my personal watch list (and maybe even my portfolio.)

Home Renovations Update III

I thought I’d take a break from the “Investing Based on Demographics” theme for a day to give a quick update on my home renovations (as a couple of people have emailed me wondering how they're progressing). Basically, I haven’t really done much since my last update in July. However, this weekend I primed and applied the first two coats of melamine paint to our outdated kitchen cabinet doors. Three more coats will result in us having updated, new looking kitchen cabinets. The total cost for this project will be:

Melamine Paint: $80
New Hardware: $110 (estimate)

By simply painting our existing cabinets I’ve essentially saved 1 to 2 thousand dollars, as that’s what it would cost to replace the kitchen cabinet doors with brand new ones. As I’ve already spent $880 on home updates this will bring my total spent to $1070 leaving me $930 to spend on the remaining fix ups.

Investing Based on Demographics - IGM, TROW

IGM Financial (IGM)

“Provides financial products and financial planning services to individuals and corporations, including the sale of mutual funds, investment certificates and insurance programs. Also offers trust and management services to mutual and pension funds. “

Other Fact:
-Canada's largest independent mutual fund.
-Owned by PWF (Power Financial) which in turn is owned by POW (Power Corp) which is controlled by the Desmarais family.
-Over $123 billion in total assets under management.
-Over $110 billion in mutual fund assets under management.

Dividend Yield: 3.6%
-20.1% average compounded annual dividend growth over the last 10 years
ROE: 21.39%
PE: 16.8X
Estimated 2007 PE: 15.97X
Estimated 2008 PE: 13.69X
TDNewcrest: Buy, $64 target
-17.7% average compounded annual EPS growth over the last 10 years

THESIS: As the population ages they’ll increasingly start to put funds aside for retirement. As IGM is the largest mutual fund company in Canada they’ll certainly start to see their share of the action. I am a huge fan of this company and think it should be accumulated on dips. I don't personally own it as I already have 10% of my portfolio invested in the Desmarais family through POW and GWO but I would not hesitate to recommend this company (on dips) to Canadian investors…especially those pursuing a dividend growth strategy. However, it’s important to note that although the dividend is secure mutual fund companies are cyclical so be prepared for a stable dividend but not necessarily a stable share price.

T. Rowe Price Group Inc. (TROW)
“T. Rowe Price has very strong positions in two of the larger markets in the asset-management industry: the 401(k) market, and directly distributed mutual funds. The company is the third-largest manager of directly sold no-load mutual funds in the United States and is among the top 10 in 401(k) assets under management. These two markets now represent approximately 65%-70% of all mutual fund assets. While the company is primarily a U.S. asset manager, it is also expanding its business abroad. T. Rowe Price has approximately $380 billion in assets under management.”

Dividend Yield:1.28%
ROE: 24.34%
ROI: 25.08%
PE: 25.56X
Estimated 2007 PE: 22.44X
Estimated 2008 PE: 19.05X
S&P Rating: 3 stars, hold, $57 price target
Argus Rating: buy, $64

THESIS: The thesis is the same for this company as IGM as the population ages they will be putting more money aside for retirement and thus purchasing more funds and investment products. A great company however, I would hold off on purchasing based solely upon valuation.

Investing Based on Demographics - SMG & FO

The Scotts Miracle Gro Company (SMG)
“The Scotts Miracle-Gro Company is the world's leading lawn and garden company with trusted brands in every category in which we compete”

Dividend Yield: 1.14%
ROE: 13.9%
ROI: 25.89%
PE: 25X
Estimated 2007 PE: 18.47X
Estimated 2008 PE: 16.35X
S&P Rating: 3 stars, Hold, $46 target price

THESIS: The consumer lawn and garden industry is now one of the worlds leading outdoor leisure activities and is currently around a $7 billion global business. As the population ages they will be home more and presumably be spending more time and therefore money on their lawn and gardens. The only flaw that I can see with this thesis is the fact that there is a push in many of the industrialized countries to limit or ban herbicides/fertilizers and most other chemicals used to beautify lawns.

Fortune Brands (FO)
“Fortune Brands is a leading consumer brands company sharply focused on shareholder value. With our foundation of powerful and trusted consumer brands, industry-leading innovation and proven strategy for growth, we're consistently delivering strong results...for consumers and for our shareholders.”

FO has multiple growth and premium brands in 3 main categories.
1. Home and Hardware – Moen, Home Crest, Simonton
2. Spirits and Wine – Knob Creek, Jim Beam, Sausa, Clos du Bois
3. Golf – Fitleist, Pinnacle, Cobra

There were too many brands to list but for a complete list please visit the Fortune Brands website by clicking here.

Dividend Yield: 2.07%
ROE: 15.96%
ROI: 8%
PE: 16.5X
Estimated 2007 PE: 15.94X
Estimated 2008 PE: 14.63X
S&P Rating: 3 stars, hold
Argus Rating: Hold

THESIS: The thesis behind this is easy. FO basically only markets brands that appeal to the older segment of the population. To my great dispointment...as people age they tend to drink less beer and more wine and spirits, they have more time (being retired) so they golf more and generally have more disposable income to buy luxuries around the home. In my opinion this company is perfectly positioned to capitalize on the aging population and will definitively be added to my watch list.

Investing Based on Demographics - WAG, CVS

Walgreens (WAG)
“Walgreen Co., based in Deerfield, Illinois, filled 529 million prescriptions in fiscal 2006, and pharmacy business accounted for 64.3% of its $47.4 billion in sales. Walgreen also sells over-the-counter medicines which accounted for 11% of sales, as well as general merchandise (which accounted for about 25% of sales), ranging from digital photos to pinto beans. The company's Walgreen's Health Initiatives business manages pharmacy benefit plans for companies and other organizations. As of the end of, August, Walgreen operated 5,992 drugstores in 48 U.S. states and Puerto Rico.”

Dividend Yield: 0.86%
ROE: 19.88%
ROI: 18.68%
PE: 21.6X
Estimated 2007 PE: 21.3X
Estimated 2008 PE: 18.87X
S&P Rating: 5 Stars, Strong Buy, $56 price target
Argus Rating:Buy $53 price target
-paid a dividend for 299 straight quarters
-raised its dividend for 32 consecutive years.

THESIS: the thesis behind this company is obvious: older people take more drugs and fill more prescriptions. WAG should also benefit from seniors buying more beauty items in an effort to keep looking young, as well as more impulse items simply because they’ll be in the store more.

CVS Caremark Corporation (CVS)
“CVS Caremark is the #1 provider of prescriptions and related healthcare services in the nation. The Company fills or manages more than 1 billion prescriptions annually. Through its unmatched breadth of service offerings, CVS Caremark is transforming the delivery of healthcare services in the U.S. The Company is uniquely positioned to effectively manage costs and improve healthcare outcomes through its 6,200 CVS/pharmacy stores; its pharmacy benefit management, mail order and specialty pharmacy division, Caremark Pharmacy Services; its retail-based health clinic subsidiary, MinuteClinic; and its online pharmacy, CVS.com”

Dividend Yield: 0.64%
ROE: 8.95%
ROI: 6.95%
PE: 21.75X
Estimated 2007 PE: 19.78X
Estimated 2008 PE: 16.27X
S&P Rating: 5 Stars, Strong Buy, $46 price target
Argus Rating: Buy, $40 price target

THESIS: is the same as with WAG: older people take more drugs and fill more prescriptions. CVS should also benefit from seniors buying more beauty items in an effort to keep looking young, as well as more impulse items simply because they’ll be in the store more.

Investing Based On Demographics

Ok it took a while for me to post it...but here is the compiled list of companies that should benefit from the aging of the North American population. During the rest of the week (and possibly into next week) I’ll provide a brief description of each name as well as a few of the “vital stats” on each. I’d also just like to thank nurse,b and the MoneyGardner who contributed many of the names.

Walgreens (WAG)
CVS Caremark Corporation (CVS)
The Scotts Miracle Gro Company (SMG)
Fortune Brands (FO)
IGM Financial (IGM)
T. Rowe Price Group Inc. (TROW)
Disney (DIS)
Reitmans (RET.A)
Chartwells Seniors Housing (CSH.UN)
Shoppers Drug Mart (SC)
CML Health Care (CLC.UN)
Johnson & Johnson (JNJ)
Teva Pharmaceutical (TEVA)
Allergan, Inc. (AGN)
Rite Aid Corp. (RAD)
Pfizer (PFE)
Glaxo (GSK)
Callaway Golf (ELY)
National Dentex (NADX)
Baxter (BAX)
Haemonetics (HAE)
Kimberly Clark (KMB)

Retirement NestEgg at the Close of Sept 4, 2007

-Up 1.7% from last month
-Up 8.6% in 2007

TRP – 4.04%
ABX – 4.19%
CSH.UN –3.38%
GWO – 4.96%
PFE – 3.87%
POW – 4.52%
BA.UN – 0.4%
L – 3.75%
UNS – 2.81%
GZ – 2.25%
TD – 13.8%
EIT.UN – 2.81%
JNJ – 5.68%
MMM -4.22%
ZED – 0.55%
GO.A – 3.03%
ATD.B – 4.04%
O'Shaughnessy’s Global Fund – 3.95%
American Growth Fund – 1.01%
Canadian Value Fund – 3.67%
Small Cap Growth Fund – 4.1%
Chou Associates Fund – 10.41%
Health Science Fund – 0.89%
Money Market Fund – 7.6%

There were no big changes (either up or down) in my portfolio this month. Stocks that I am watching this month are WAG, BMO, BNS and IPL.UN.

Sold Barrick (ABX)

I sold ABX yesterday after the large rise in gold prices. I’m the first to admit that I don’t really understand in this day and age what drives gold prices. I originally bought ABX because fundamentally it appeared to be good value and it provided some diversification in my portfolio. Historically gold has always been viewed as a safe haven, a place to park your money during times of uncertainty with the US dollar and during times of political and economic instability. I decided to sell because personally, I don’t think we are in a less stable environment than we were a month ago and I get a little worried when any commodity rises rapidly during a short time period. Additionally, the price move appeared to be driven primarily by funds and investors and not by demand for the physical commodity. This means the price of gold could fall whenever the funds and investors decide to take profits.

Investing in gold stocks is certainly not part of my core strategy of dividend growth. However, whether it’s justified or not investors still flock to gold for safety and then pile out of it when they perceive it’s safe again. I may have sold to early (which is a common theme of mine)... but I guess time will tell. If ABX slides back to the low 30’s I’ll certainly start taking another look at it.

Bank Dividend Growth 2000 to 2007

I came across this interesting chart while doing my daily read at globeinvestor.com. This chart really reinforces the power of the dividend growth strategy. It nicely summarizes the dividend growth of the big Canadian banks over the last seven years. I know nothing is too good to be true but historically the bank stocks sure look like it.

For the complete story please click here.

On Vacation

Sorry I forgot to post this last week but I'm on vacation until Sept 4 (this was the first time I could get on the internet).

Enjoy the last few weeks of summer.

Cheers,
MCM

8% Pay Raise

Well in the midst of the whole sub-prime scare TD decided to give me an 8% raise. They recently reported great third quarter results and raised their quarterly dividend by 8%. This move simply reinforces my conviction in the dividend growth strategy that I’m pursuing. Simply put the strategy involves buying out of favour but stable, high quality, blue chips that have a long history of dividend increases.

Investing Based on Demographics

It’s a fact North America is getting older. The baby boomers have made their mark in every stage of their life and their retirement and old age will be no different. I’ve compiled a little list of some of my favorite companies that will be directly benefiting from the aging North American population. Please feel free to add your companies to the comments section and then I’ll compile a comprehensive list later in the week.

CSH.UN
SC
CLC.UN
JNJ
TEVA

Dividend Growth Stock VI

Bank of Montreal BMO

“Founded in 1817 as Bank of Montreal, today BMO Financial Group is a highly diversified financial services provider. We offer clients a broad range of personal, commercial, corporate and institutional financial services across Canada and in the United States through BMO Bank of Montreal, BMO Nesbitt Burns, BMO Capital Markets and our Chicago-based subsidiary, Harris Bank.”

-founded in 1817
-policy to payout 45% to 55%
-paid dividends for over a century
-dividend increased 80% from 2002 to 2006
-current yield of 4.2%
-trailing P/E 13.4
-2007 estimated P/E 11.5
-2008 estimated P/E 10.8
-ROE 19%

Major Purchase and Depressed Markets

Although the markets have fallen a lot recently I haven’t made any purchases. The main reason I haven’t pulled the trigger yet is simple...I have very little available cash. I recently purchased a cottage and as such will need all of my available funds for the down payment. However, I have a small amount of money available to invest in my RRSP and I’m currently looking to add one of the following companies IPL.UN, BMO, BNS. Longer term I believe all of the above three names are a good buy and I currently have an order in for IPL.UN at $8.50 (I’m doubtful that it will reach that level but if it does I’ll be an owner). I may have more available cash after the financing for the cottage is worked out. However, until the details of the cottage financing are worked out I only have enough money for one position.

The timing of the cottage purchase was certainly not perfect however, we have been looking in the area that we bought in for about 4 years and this was the first opportunity to buy in that time period so we jumped on it. We don't view the cottage as an investment and plan on never selling.

Time to Buy Financials?

Is there actually a global credit crunch? Is there a major economic crisis in the making as a result of the US sub-prime mortgage market? I don’t think anyone really knows but if I was a betting man I’d bet YES to the above two questions. Ok, so now that we’ve established that there might be a legitimate credit crunch what do we do? Panic? Sell all our holdings? Never buy another stock? That might work for some people but what I’d suggest is scan the market, identify which sectors and companies are taking the biggest hits and evaluate whether or not these out of favour stocks might be a good fit for your portfolio. The recent market declines are eminiscent of 2002 when I picked up TD. With many of the Canadian banks hitting 52 week lows I think that the time might be near for Canadian investors to get their fingers back on the buy button. Remember...BUY ON FEAR, SELL ON GREED.

How I Select Securities

I am for the most part a value investor and as such invest primarily based on fundamentals. Some of the main metrics that I use are:

-P/E
-Forward P/E
-Price/Book
-Dividend growth rate
-ROI
-ROE
-Average EPS growth
-debt levels
-revenue growth

I am not going to provide specific numbers for each of the above metrics as it varies from industry to industry. However, one number that I generally view as being important is the forward P/E and I will rarely invest in a company with 1yr forward P/E of over 18 and a 2 year forward P/E of over 15. Due to that fact I generally do not invest in the technology sector (regardless of how great a company’s technology is I’m not going to pay over 18X next years earnings for it). From my experience, growth companies and those with a high P/E will often get caught with “multiple compression” when either the economy stalls or they fail to meet expectations.

I also look at qualitative factors such as:
-barriers to entry
-competitive advantage
-long term prospects of the industry (ie- I wouldn’t invest in a Cassette tape manufacturer that was trading dirt cheap---unless of course they had some valuable underlying assets such as real estate that weren’t factored into the price)
-management (do not focus on it though)
-cyclicality of the industry
-the fit of the stock in my portfolio

I usually don’t set target prices but in almost all cases I use limit orders when both buying and selling.

Retirement Nest Egg at the close of August 3, 2007

-Down 2% from last month
-Up 6.8% in 2007

TRP – 4.16%
ABX – 4.25%
CSH.UN – 3.24%
GWO – 4.82%
PFE – 3.78%
POW – 4.21%
BA.UN – 0.41%
L – 4.06%
UNS – 2.83%
GZ – 2.82%
TD – 13.35%
EIT.UN – 2.95%
JNJ – 5.80%
MMM -4.13%
ZED - 0.52%
GO.A – 2.97%
ATD.B – 3.77%
O'Shaughnessy’s Global Fund –3.93%
American Growth Fund –1.0%
Canadian Value Fund – 3.73%
Small Cap Growth Fund – 4.27%
Chou Associates Fund – 10.42%
Health Science Fund – 0.87%
Money Market Fund – 7.68%

My portfolio is down 2% from last month. Most of the lost was a result of the general decline in the market. However, both CSH.UN and EIT.UN declined approx. 8% over the month. I am going to continue to hold all my positions and will begin to look at accumulating more shares if the market declines further. I am currently taking a hard look at BNS.

Why I Chose a Dividend Growth Strategy

In this post I’m going to explain why a dividend growth strategy works for me.

1.In my opinion a growing dividend is usually a good indicator that a company is healthy (although certainly not the only indicator). Annual dividend increases indicate that the executive and director insiders are sufficiently confident in the long term prospects of the business to payout their earnings as dividends.

2.Dividends from Canadian sources are taxed at a preferential rate (see this post for details on the tax treatment of dividends)

3.Commission costs are dramatically lower as positions are usually held for the long term.

4.Annual dividend growth can protect your income stream against inflation. Additionally, companies with a history of increasing their dividend can usually pass much of the price inflation on to their customers.

5.The share price of the company usually increases with the dividend (ie-you don’t see many high quality blue chips yielding more than 4% because the share price increases with the dividend)

6.I have the patience, risk tolerance and long term time horizon necessary to ride out market cycles and successfully implement a dividend growth strategy.

Vacation

I will be on vacation from now until August 7th and won't have access to the internet for the week so...you might as well cancel your internet and disconnect your computer as there will be no posts until my return.

Cheers,

US Banks

The US banks haven’t been a pleasant place to be invested recently. Here is a snapshot of the price history of some of the big US banks over the last month (remember these loses exclude any losses resulting from the rising CDN dollar)

C
June 25: $51.69
Now: $49.21
Change: DOWN 4.8%

BAC
June 25: $48.85
Now: $47.93
Change: DOWN 1.8%

JPM
June 25: $48.36
Now: $45.27
Change: DOWN 6.4%

USB
June 25: $33.39
Now: $31.14
Change: DOWN 6.7%

WB
June 25: $51.91
Now: $48.83
Change: DOWN 5.9%

WFC
June 25: $35.08
Now: $34.57
Change: DOWN 1.5%

As you can see there where some fairly impressive declines over the last month. So…does this mean it might be time to pickup some big US banks? Personally, I think there might be another round of declines. What’s your opinion?

Bicycle Trusts

I was recently reading about setting up trust funds and thought I’d highlight this interesting trust structure. A bicycle trust is similar to traditional trusts except there are certain milestone and requirements that must be met by the beneficiaries. These milestones can be virtually anything ie-graduating university, turning 35, etc...So much like riding a bicycle you have to “pedal” to make it work. This is a great structure to ensure that your hard earned inheritance is being used in an appropriate and responsible manner. A properly thought out bicycle trust would ensure that if something did happen your 18 year old son couldn’t drop out of school and use the $300,000 trust fund to tour himself and his band around the country for a few years. Instead, the trust could be setup so that he’d receive $20,000 upon your death however, after that milestones would have to be met to receive more money, $15,000 after the first year of university, $15,000 after the second etc...

If your interested in reading more here is a link to an article about bicycle trusts.

Alimentation Couche-Tard

I initiated a position in ATD.B on Friday. I revisited this name shortly after my last Wednesday’s posting “Where is the Value?”. I’ve provided a brief description of ATD.B as well as my reasons for buying:

“Couche-Tard is the largest convenience store operator in Canada with a network of over 2,000 stores in Canada as well as a considerable presence in the U.S., with more than 3,000 additional stores. Over 3,600 of the total number are Company-operated stores and nearly 1,400 stores are operated under our affiliate program. The Company sells fuel in 65% of its Company-operated stores. The Canadian stores are located in Quebec, Ontario, Alberta, British Columbia, Manitoba, Saskatchewan and the Northwest Territories. The U.S. stores are located in 28 states. The stores are primarily operated under the Couche-Tard® and Mac’s® trademarks in Canada and the Circle K® trademark in the U.S."

"In addition to the North American Couche-Tard network, there are approximately 3,500 Circle K licensed stores located in seven other regions worldwide (Japan, Hong Kong, China, Indonesia, Guam, Macao and Mexico).”

-Trailing P/E 20
-2008 estimated P/E 16
-2009 estimated P/E 14.5
-ROA 10.46
-ROE 23.46
-Recession proof industry
-Recognizable and strong brand (I personally like the layout of the Mac stores)
-Stock has been under pressure recently due to declining US fuel margins (at the pump) as well as the integration of the 236 convenience stores purchased from Shell in Dec 2006.
-In my opinion the last couple of quarters were decent despite the unfavourable fuel margins. I believe that when margins turn around these guys will surprise the street.
-TDWaterhouse has a 12 month target price of $28 (up about 30% from current levels)
-Successful history of growing by acquisition (in both Canada and the US)

Inflation

The latest inflation numbers are in and to the surprise of many economists inflation declined 0.3% from the previous month (2.2% versus the predicted 2.5%...but still above the central banks target of 2%).

Although inflation checked in at a national annualized rate of 2.2% I think it’s meaningful to examine where this average is coming from. Listed below are the inflation rates per province and territory:

—Newfoundland and Labrador 1.4
—Prince Edward Island 1.6
—Nova Scotia 1.8
—New Brunswick 1.9
—Quebec 1.5
—Ontario 1.6
—Manitoba 2.2
—Saskatchewan 3.2
—Alberta 6.3
—British Columbia 1.5
—Whitehorse, Yukon 1.7
—Yellowknife, N.W.T. 3.6
—Iqaluit, Nunavut 2.8

Anything stand out? Of course it does...all the provinces/territories participating in the oil boom are also experiencing rapid inflation (mainly as a result of the high cost of housing).

Where is the Value?

With the exception of resource companies I invest for the long term based on a number of factors (mainly fundamentals). However, lately I’ve been having a hard time finding any attractively priced equities that I’d want to hold for the long term (if you’ve found any let me know). I have a personal philosophy that once money enters my investing account it can’t be taken out until retirement. As a result, I’ve been accumulating cash in my regular bank account (which isn’t included in my monthly nest egg statements). Instead of depositing this money into my nest egg investing account I am going to be using this money on real estate in 1 of 2 ways:

1. Going to pay down my existing mortgage (which would be equivalent to generating a guaranteed after tax return of 5%)
2. I’m in talks to purchase a house privately and would use this money as a down payment/deposit (would be over a year closing time).

Golden Blog Awards

Well I just thought I’d tout my own horn today as I’ve recently won a very very very prestigious “Golden Blogs” award in the “Best Blog Name” category. The awards were held at the lavish and informative online palace of The Money Gardener over at http://themoneygardener.blogspot.com. If you want to check out the event or any other of the prestigious award winners you can check them out here.

Renovations Update – II

I made some significant progress in my house renovations over the last 4 days. I primed and painted almost the entire interior of the house. Here are the approximate costs of the work:

–paint and primer (cost $210)
-beer for helpers ($175)
-food for helpers ($20)
-brushes and trays ($45)
-plaster for areas damaged by wallpaper/trim removal ($5)
-misc ($10)

TOTAL: $465 (leaves me $1120 in my renovations budget)

In my opinion the painting is by far the best "bang for my buck" and will have the greatest return once I sell the house.

Items Remaining:
-Aesthetic work to 2nd bathroom
-Painting front door
-Painting trim
-Replacing kitchen counter tops(?)
-Replace receptacle, switches + plates
-Clean/scrub garage
-Paint Kitchen cabinets

Dividend Growing Stocks - V

TransCanada Corp - TRP

"TransCanada is a leader in the responsible development and reliable operation of North American energy infrastructure. Our network of more than 59,000 kilometres (36,500 miles) of pipeline taps into virtually all major gas supply basins in North America. TransCanada is one of the continent’s largest providers of gas storage and related services with approximately 360 billion cubic feet of storage capacity. A growing independent power producer, TransCanada also owns, or has interests in, approximately 7,700 megawatts of power generation."

-Has paid a dividend for the last 42 years
-Long history of increasing dividends (with the exception of 1999 where they cut it from $1.12 to $0.8)
-The purpose of the dividend cut was "to strengthen its financial flexibility and capture North American energy growth opportunities."
-Current P/E 17X
-Estimated 2007 P/E 18X
-Estimated 2008 P/E 16.7X
-Current yield 3.7%
-TD target price of $44

15 year Dividend History

Year Annualized Dividend (Declared)
2006 $1.28
2005 $1.22
2004 $1.16
2003 $1.08
2002 $1.00
2001 $0.90
2000 $0.80
1999 $1.12
1998 $1.18
1997 $1.18
1996 $1.10
1995 $1.02
1994 $0.94
1993 $0.86
1992 $0.78
1991 $0.73

Inter Pipeline Fund - IPL.UN

I’ve put in a limit buy for IPL.UN at $9 per unit. For those of you unfamiliar with the company here is a little blurb about them:

“Created in 1997, Inter Pipeline Fund is a major petroleum transportation, storage and natural gas liquids extraction business based in Calgary, Alberta, Canada. Inter Pipeline is a publicly traded limited partnership that owns and operates a diversified combination of energy infrastructure assets in western Canada, the United Kingdom, Germany and Ireland. This asset portfolio generates long-term and predictable cash flows, thereby providing unitholders with a growing and stable source of monthly cash distributions.”

I’ve decided to put a limit price in for IPL.UN for many of the same reasons outlined by Moneygardener in his May 18th post. If my order is filled I will be buying these units with a portion of the proceeds from a bond that matured in June. I am not expecting a large increase in either the share price or distributions from IPL.UN however, what I am expecting is a steady and consistent distribution. I am treating this purchase as a replacement to the small fixed income portion that I used to have in my portfolio. I am aware that there is more risk involved and of the argument that trusts can never be considered a replacement for fixed income. However, I am comfortable with the additional risk and with bond yields barely over 5% I am willing to bet that IPL.UN will maintain their distribution (or not reduce it significantly) and be either at or above it’s current value in 5 or 10 years. If my thesis holds true I’ll handily beat any bond that I could purchase with a 5 or 10 year maturity date.

Here are some of the reason that I’ve put a limit buy in:
•Currently transport 18% of total western Canadian conventional volumes and 50% of oil sands volumes.
•Inter Pipeline's NGL business currently processes approximately 40% of the natural gas exported from the province of Alberta.
•At 9$ a unit it will yield 9.33%
•Trailing P/E 14.9
•Estimated 2007 P/E 17.6 (at 9$ a unit)
•Estimated 2008 P/E 15.5 (at 9$ a unit)

Home Renovation Update

Last week I wrote about some home renovations that I plan on doing prior to selling, here’s the update:
•Stained the deck (approx cost $15)
•Removed kitchen cabinet doors and filled in holes (approx cost $0)
•Replaced bathroom vanity, sink, faucet and moved plumbing (approx cost $400)

This week I plan on:
•Filling some holes in the bathroom drywall that were created as a result of removing porcelain inlayed toilet paper rolls and towel holders.
•Painting the removed kitchen cabinets

Total spent on the renovation so far:$415. This leaves me with $1585 remaining in my budget.

Questrade - Promotion

Hi All,

I just got some more news from Emil over at Questrade.

"I came across some news recently that I'm not sure if you know about, and thought you and your readers might be interested in.

As of June 26th, Scotiabank has bought out TradeFreedom Securities. This makes Questrade the last independent brokerage in Canada, and with Canada Day just around the corner, we decided to celebrate.

Please feel free to check out our site for the independence celebration promotion. It’s quite humorous. I hope it will spark a new conversation in your website."

Here's a link to their July promotion here.

Retirement Nest Egg at the close of June 30, 2007.

-Down 2.5% from last month.
-Up 9.1% in 2007.

TRP – 3.96%
ABX – 3.72%
CSH.UN – 3.41%
GWO – 4.72%
PFE – 3.97%
POW – 3.41%
BA.UN – 0.4%
L – 4.27%
UNS – 2.8%
GZ – 2.82%
TD – 13.77%
EIT.UN – 3.05%
JNJ – 5.66%
MMM -4.16%
ZED - 0.74%
GO.A – 3.21%
O'Shaughnessy’s Global Fund – 4.01%
American Growth Fund – 1.02%
Canadian Value Fund – 3.88%
Small Cap Growth Fund – 4.28%
Chou Associates Fund – 10.68%
Health Science Fund – 0.88%
Money Market Fund – 10.29%

Well this has been one of my worst months so far as my portfolio is down 2.5% from last month. This is mainly due to currency appreciation and a general decline in the market. I am going to continue to hold all my positions and will begin to look at accumulating more shares if the market declines further.